Goldman profit falls to record low

Goldman Sachs, the renowned Wall Street powerhouse, experienced a significant decline in profits during the second quarter, falling short of expectations set by analysts. The bank’s earnings were severely impacted by its strategic withdrawal from consumer-oriented ventures and a decrease in investment values, resulting in a $1.4 billion decrease in earnings.

These financial results represent the lowest figures reported by the Wall Street giant since Q2 of 2020 when it faced substantial write-downs due to a corruption scandal involving the Malaysian state fund 1MDB.

Among the factors contributing to Goldman Sachs’ decline, a write-down of $504 million linked to its GreenSky business, which facilitates consumer loans for home improvements, and another $485 million related to its real estate investments weighed heavily on the bank’s profitability.

Consequently, the bank’s shares experienced a 0.7% dip in early trading, reflecting investor concerns about the company’s performance.

Additionally, Goldman Sachs recorded credit losses of $615 million, including write-downs associated with its consumer loans and business.

David Solomon, the CEO of Goldman Sachs, acknowledged the challenges faced by the bank and highlighted the strategic execution of its goals. He noted that the Global Banking & Markets division delivered solid returns despite the low activity in the market, emphasising the bank’s top position in the M&A league tables for completed deals.

For the three-month period ending on June 30, earnings per share witnessed a substantial 60% decline, amounting to £3.08 compared to £7.73 during the same period last year, according to the bank’s report released on Wednesday. Analysts had anticipated profits per share of £3.18, as per Refinitiv data.

Furthermore, net earnings for Q2 dropped by 62%, reaching £1.07 billion, in contrast to £2.79 billion reported a year earlier.

Randy Frederick, the managing director of trading and derivatives at Charles Schwab, expressed surprise at Goldman Sachs’ underperformance in relation to other major banks, stating, “They definitely missed the target, and that seems to be an outlier relative to virtually all the other major banks.”

Goldman Sachs acquired GreenSky for £2.2 billion in 2021, eventually finalising the deal at £1.7 billion. Furthermore, the bank integrated its Marcus unit into its merged asset and wealth management arm last year as part of its strategic withdrawal from retail banking.

The sale of the majority of the Marcus loans portfolio generated a gain of £100 million for Goldman Sachs.

The asset and wealth management unit experienced a 4% decrease in revenue compared to the previous year due to losses from real estate investments. Nonetheless, the division recorded record fees and assets under supervision.

Goldman Sachs announced plans to divest approximately half of its commercial real estate-related investments in its alternative arm of asset management within the next three to five years.

In contrast to their counterparts, JPMorgan Chase and Morgan Stanley, whose earnings surpassed expectations, Goldman Sachs witnessed a 20% decline in investment banking fees, amounting to £1.43 billion. Trading revenue from fixed income, currency, and commodities fell by 26%, while equities saw a modest 1% increase.

The Federal Reserve’s aggressive interest-rate hikes aimed at curbing inflation have prompted executives to anticipate a slowdown in the second half of the year.

The uncertain economic outlook has hindered mergers and acquisitions activity, although the recent surge in initial public offerings has provided a glimmer of hope for a nascent recovery.

Goldman Sachs’ competitor, Morgan Stanley, reported that its investment banking revenue remained steady compared to the previous year, but its trading business showed signs of weakening.

Analysts remain cautiously optimistic, anticipating that the ongoing recovery in stock markets will drive dealmaking and encourage more companies to pursue initial public offerings in the coming months.

However, the prevailing economic uncertainties continue to impede global mergers and acquisitions, resulting in a 36% decline in activity during Q2 compared to the previous year.

To mitigate the impact of the dealmaking slowdown, Goldman Sachs has already laid off thousands of employees to reduce costs. If revenue fails to rebound, additional layoffs are expected throughout the year, according to sources familiar with the matter.

As of Q2, the bank’s headcount has already decreased by 2% to reach 44,600 employees.